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Scope & Coverage of the Ahkam on Riba

The rules of Shari‘ah for individuals also apply to institutions and the state. Furthermore, the agreement signed by the Prophet (pbuh) with the people of Najran implies that Muslims cannot enter into Shari‘ah-proscribed contracts with non-Muslims.

These are the basic points for diagnosing riba in existing international transactions and sorting out its viable Islamic alternatives. For the latter purpose, two other relevant points are as follows:

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First, costs can be claimed in lieu of Shari'ah-permit- ted services. For example, one can make a trip to bank to cash his cheque. Alternatively, he can ask someone else to help in doing the same. The latter can claim charges for his services. A corollary of this point is that risks which can be reduced through Islamically legitimate actions can be insured. For example, the goal of safely carrying a thing to one’s customer can be achieved by asking another party to guarantee safe delivery of the same at its destination in return for some fees.

Second, all contracts should be free from ghararr — any ambiguity leading to unfair advantage for one party at the expense of the other. This may happen, for example, when there is imperfect information and one of the parties is obliged to deal with the other on terms not consistent with the prevailing market conditions. This principle is important to foreclose the possibility of riba coming through the back door.

The aforementioned four principles plus these two points form the yardstick for this study. These provide the basis for conceiving Islamic alternatives anew, where necessary. Before we get down to our main task, it is important to have a clear idea about the operation of foreign exchange markets during the early Islamic period and the lessons that can be drawn for today.